April 28, 2010

Wyden Files Amendment to Force Financial Firms To Disclose Bets Made Against Their Clients

Recommends Oversight Council consider rules requiring complete transparency of financial interests.

Washington, D.C. – In an effort to promote greater transparency between buyers and sellers, U.S. Senator Ron Wyden (D-Ore.) filed an amendment to the financial reform legislation today that intends to force financial institutions to clearly state any financial stake they have in seeing their product lose value. Wyden argued that transparency and accountability are essential to a functioning market and that this amendment will bring those attributes to an area of finance that has notoriously operated in secret.

“No other industry would bet against their own product while selling it to the American people,” Wyden said. “The fact is that for years the industry has used the sin of omission and the sheer complexity of their products to hide their hedging and their real views about the value of their products.  If these firms are willing to create and sell these products then they should be able to stand behind them and be honest with their clients.”

Wyden’s full disclosure amendment will require the new Financial Stability Oversight Council, which is established in the financial reform proposal, to put forward rules requiring any seller of a financial product to disclose to the purchaser whether the seller would benefit financially if the product lost value.  While Wyden identified disclosure of short positions made against clients as the immediate priority for the Council, he said that a case can be made for disclosing all of a firm’s financial positions related to products that they are marketing.   As can be seen almost industry-wide, financial firms have been selling more and more complex financial products and instruments and in some cases hedging their bets against the failure of those complex products. Wyden’s legislation intends simply to require sellers of these products to be honest and forthright with customers. The new Financial Stability Oversight Council is given broad authority to push forward a wide array of rules to promote transparency; Wyden’s amendment would require the council to prioritize rules that require disclosure when firms bet against their clients.